Bonn says recovery is gathering strength

GERMANY'S economic recovery is gathering strength and should be boosted further later this year as firms take advantage of the global upturn, the Economics Ministry said.

It said in its July monthly report that western German gross domestic product in the second quarter of 1994 would rise appreciably on the first quarter and would be significantly higher than a year ago.

Western German GDP grew a real 0.5 per cent in the first quarter compared with the final quarter of 1993, and was up 2.1 per cent from a year earlier. This unexpectedly strong growth led economists to revise upwards their forecasts for 1994's GDP from little over nil to around 1 per cent, with pan-German growth of 1.5 per cent.

The government, which faces a general election in October, has recently exhibited increasing optimism about the pace of recovery.

This view is at odds with that of most independent economists, who expect a slowdown in growth in the second quarter and remain doubtful about any noticeable acceleration in the second half of this year. Bank Julius Bar in Frankfurt forecasts western GDP growth of 0.3 per cent in the second quarter, and the possibility of stagnation over the summer.

The main uncertainty is private consumption, which defied increased taxation by growing strongly in the first months of the year, driving the stronger-than-expected GDP growth. Second-quarter consumption has provided a mixed picture, plunging in April and recovering strongly in May. Independent economists doubt that western Germans will continue to dip into their savings and expect consumption to be a drag on economic growth.

According to Gunter Rexrodt, the Economics Minister, a survey of industry showed corporate expectations for the next few months to be more positive than they have been in the past 20 years.

In eastern Germany, the recovery is beginning to take hold in industry, where manufacturing orders rose by more than 22 per cent in the first four months compared with a year earlier. Mr Rexrodt said the eastern economy is expected to grow by 8 per cent this year.